Cooling Down the Fever

By+Deng+Yaqing

Meng Fang， a 32-year-old woman， has been searching in vain to buy an apartment in Beijing since early 2015. “The price of an apartment that I once planned to buy at 4.5 million yuan （$653，000） in 2015 has now soared to 9.3 million yuan （$1.34 million），”said Meng. She eventually gave up on buying it because the owner refused to meet her.

This January， Meng decided to lower her expectations， hoping to withdraw from the fierce home purchasing battle before the Lunar New Year holidays （January 27 to February 2）. The apartment she took a fancy to was priced at 9.5 million yuan （$1.37 million）， with a tax of 600，000 yuan （$87，102）， and was located around the Fifth Ring Road in north Beijing.

“Just when the home owner and I were about to sign the contract， he changed his mind and declined to continue the transaction，” said Meng， who still lives in a small two-room apartment. Meng said it is unlikely she will move into a new home in the foreseeable future.

Skyrocketing housing prices in the city have triggered tightening of home mortgage and purchase rules by central and local authorities.

On March 17， the Peoples Bank of China， the central bank， announced that it is tightening the rules on home mortgages in Beijing and escalating measures to rein in the overheated real estate market in the city on March 24.

The minimum down payment ratio required for those seeking to buy a second home has now been raised to 60 percent from 50 percent， and those who have no home in Beijing but have a record of taking out a housing mortgage are also treated as second-home buyers. In the past， if buyers whose mortgage had been paid off had applied for a new mortgage for a second home， they were regarded as fi rst-time buyers.

Even couples who have allegedly divorced in order to take advantage of reduced down payments when buying a second house in Beijing are now unable to do so. That is due to a newly passed regulation restricting access to the discount for people who have been divorced for less than one year.

Following Beijing， more than 20 cities and counties have rolled out similar tightened rules to cool their local property markets， including Guangzhou， Shijiazhuang， Zhengzhou， Chengdu and Fuzhou.

While the property market in first- and major second-tier cities is overheated， some third- and fourth-tier cities are mired in a large amount of housing inventory.

At the China Development Forum 2017 held in Beijing from March 18 to 20， He Lifeng， Chairman of the National Development and Reform Commission， said that the government will apply different measures to different cities according to local conditions to help cut inventory and regulate the housing market.

He made it clear that homes are a place to live in and are not for speculation. Longterm policies should be improved to facilitate stable and sound development of the market and control excessive fl ow of credit funds to the market， he said.

Behind the binge buying

Compared to January， among the 70 large and medium-sized cities， sale prices of newly constructed commercial residential build- ings declined in 12 cities， increased in 56 and remained at the same level in two in February. Among them， prices in fi rst-tier cities increased by 0.1 percent month on month， while those in second-tier and third-tier cities rose by 0.3 percent and 0.4 percent respectively， according to statistics released by the National Bureau of Statistics （NBS） on March 18.

Measures to restrict house purchasing activities launched last September seem to have yielded little result in terms of suppressing the relentless rise of housing prices， and some are warning of the dangers of mounting speculation. Will the new strict housing policy succeed in dampening consumersenthusiasm？

Jia Kang， President of the China Academy of New Supply-Side Economics， argued that the housing price surge in China cannot be considered a bubble. Jia added that people dont have to worry about China experiencing the pain brought about by a burst housing price bubble as Japan once did in the 1990s.

“At that time， Japans housing prices suf-fered from a wide collapse， behind which its urbanization rate was 77 percent. In 2016， Chinas urbanization rate was a mere 41 percent， according to the NBS， rising 1.3 percentage points from the previous year. Thats to say， the country is 30 percentage points away from reversing its growth impetus，”said Jia.

“In the next few decades， roughly 400 million rural residents will move to and settle down in urban areas， so people cant expect housing prices in first-tier cities such as Beijing， Shanghai and Shenzhen to decline in the next 15 years，” said Jia.

Li Xunlei， chief economist of Zhongtai Securities， held that fluctuations in housing prices mainly depend on the fl ow of population and capital. For example， last year， the cities of Hefei and Xiamen witnessed a rapid increase in property prices， with their population infl ow ranking fi rst and second nationwide. In contrast， the property market in Xian and Dalian was sluggish because the population flow to the two cities was in decline.

Beyond that， the prosperity of the housing market in big cities is propped up by the gathering of capital， said Li.

Li predicted that Chinas housing market will experience a comprehensive dip around 2020 because growth cannot be sustained by capital and population flows for an extended period of time.

“In the future， large quantities of people will concentrate in four regions—the Yangtze River Delta， the Pearl River Delta， the Beijing-Tianjin-Hebei area and cities such as Wuhan and Changsha. Therefore， housing prices in these places will be supported by a huge source of incoming population，” Li said.

Long-term mechanism needed

“If one analyzes the current round of restrictions on housing purchases， one will find that real estate regulation has spread from fi rst-tier cities to second， third and fourth-tier cities，”said Zhang Hongwei， a research fellow with the Tospur Real Estate Consulting Co. Ltd.

Zhang analyzed that the spillover effect of regulative measures in some firsttier cities has caused property prices in their neighboring regions to shoot up.

“In some third and fourth-tier cities， destocking the housing inventory is carried out alongside regulation and price control measures，” said Zhang， noting that the government is acting with caution in those regions.

Currently， measures adopted by local governments to suppress the housing market typically take place after the event， said Wang Liguo， a senior official with the Department of Housing and Urban-Rural Development of Anhui Province.

According to Jia， restrictions on purchases， loans and prices are administrative measures which can treat only the symptoms， not the disease. He suggested that the government should propel fundamental institutional improvement to establish a proper long-term mechanism.

Jia said that the government should take the lead in formulating an overall land development plan， which can ensure a sustainable land supply.

Such a plan should also make it possible for low-income groups to be accommodated in public rental apartments and publicly owned houses. Furthermore， the scheme should mobilize private funds through publicprivate partnership projects to engage in the construction of livable cities and communities， and push forward the establishment of an improved real estate taxation system， Jia suggested.